Smarter asset management: 5 tips from an expert
Optimising assets is an alternative to borrowing money in tight times. Slattery Asset Advisory director Tim Slattery has some advice for doing it smartly.
The COVID-19 slowdown has put the squeeze on Australian businesses of all shapes and sizes. A business loan can provide relief but it’s not your only option for accessing cash quickly. Liquidating a portion of your assets can also help free up funds which can be used to help your business weather the downturn. Slattery Asset Advisory director Tim Slattery shares his tips.
Assets can typically be divided into two categories: the core pieces of plant and equipment you need to run your business, and the things you could do without at a pinch. Optimising your assets starts with listing what you have and working out which are which.
Some business owners may determine they could maintain normal service with a smaller fleet of vehicles, for example, or hire, rather than own, a piece of equipment which is used infrequently.
“If you have an item that’s revenue generating then it’s important you retain it because it’s going to help you keep cash coming through the door,” Slattery says. “What may not be essential are assets which are under-utilised or sitting idle.”
Small business owners commonly develop a sentimental attachment to their business assets but this can be to their disadvantage. Being objective about the things you need to hold onto, and the things you can manage without, makes it easier to do what’s needed to stay afloat.
“In the transport and construction sector especially, we see people with an emotional investment in their trucks and heavy equipment,” Slattery recalls. “That can make them loath to dispose of them, even when it makes financial sense to do so. But if your business goes under because you don’t have the cash to survive, those things will be liquidated for whatever the market is prepared to pay. It’s better to sell while you’re in control of the process.”
When you’re looking to dispose of assets, having a realistic idea of what they’re worth can make the process smoother. Business owners may overestimate the value of what they own and can be reluctant to accept less. Having your assets valued professionally will ensure you’re in the ballpark but it’s important to remember that valuation is an inexact science.
“You don’t really know what something is worth until you test the market,” Slattery explains. “Going to auction is the most open and transparent way of determining what someone is prepared to pay. It’s also the most efficient way to generate the cash flow you need.”
Disposing of assets privately is also an option, provided you have time to do so and have a network of potential buyers. If you go down this route, it’s important to ensure your items are priced to sell from the get-go.
“The danger of offering something to the market is that people are constantly watching it. If you realise your expectations were unrealistic and drop the price, possibly several times, they are likely to notice and may even think there’s something wrong with what you’re trying to sell.”
Having an optimistic attitude can be an asset when it comes to navigating the ups and downs of life in business. But hoping and trusting things will get better isn’t the most reliable strategy when your business is in straitened circumstances.
Working out a plan to allow you to act early may be the best option. It helps decrease the likelihood of having to sell assets at fire-sale prices should the need for funds become more pressing. Restructuring specialists can help give you an objective perspective on your position and options.
“Don’t hold off on doing anything for too long because you think it will get better, unless there’s solid evidence that’s likely to happen,” Slattery says. “Optimising your assets as soon as there’s the need to do so can get you the funds you need to keep going faster. You can always get the same equipment or an equivalent back later on, when things improve.”
If the assets you’re thinking of liquidating are under finance, it’s important to keep your lenders in the loop. Many business owners are loath to do so when times are tough but open and honest communication generally leads to better solutions.
“Banks have been incredibly accommodating during the COVID crisis,” Slattery says. “They’ve demonstrated real commitment to helping small businesses get through the downturn and they’ll also be there on the other side to support them with the finance they need to rebuild and grow.”
Slatery Asset Advisory is a Business of Tomorrow alumni.
In tight times, having ready access to cash can mean the difference between sinking and swimming. Optimising your assets can shore up your balance sheet and put your business in a better position to weather the downturn and take advantage of new opportunities, as conditions improve.
This article is a general overview and should be used as a guide only. We recommend that you seek independent professional advice about your specific circumstances before acting.